$16 billion deal sets up takeover of Immunex

Amgen, the world's largest biotech company, has agreed to a takeover of Immunex that would keep most of Immunex's people and investments in place and create the first biotech company with enough financial might to rival the world's biggest drug makers.

Amgen plans to acquire Immunex for slightly less than $29 a share in cash and stock, or about $16 billion, according to sources familiar with the deal.

The boards of Amgen, Immunex and American Home Products (AHP), which owns 41 percent of Immunex, approved the deal late yesterday, sources said.

Under the terms of the agreement, Amgen and AHP would co-promote Enbrel, Immunex's blockbuster rheumatoid-arthritis drug that is expected to have sales of $750 million this year. Enbrel is one of the best-selling biotechnology drugs and the crown jewel of the deal.

The deal would leave AHP with an 8 percent stake in Amgen, but AHP would sell those shares over the next couple of years, sources said. AHP would not have a seat on Amgen's board.

The deal was to be announced before financial markets opened today, after lengthy negotiations over the weekend. Thousand Oaks, Calif.-based Amgen would pay for about 85 percent of the purchase price in Amgen stock, with the rest in cash.

Shareholders of the companies and federal regulators need to approve the deal before it can be completed. Some Amgen shareholders have vowed to block the purchase, and some Immunex shareholders are grumbling the price is too low, but the deal is expected to be completed.

The Seattle company's massive investments of the past several years would be mostly untouched. Amgen said it would continue construction on the Helix project, Immunex's $750 million complex on the waterfront at the bottom of Queen Anne Hill.

Amgen also said it would follow Immunex's plans to spend $1 billion on a pair of manufacturing plants in Rhode Island to quadruple production of Enbrel over the next four years.

But some questions are unanswered for Immunex's 1,590 employees. Much of the prized research-and-development group — which created Enbrel — is expected to be retained.

There may be some layoffs in overlapping departments, but those cuts are yet to be decided. Some of Immunex's competing projects may be merged into Amgen's, observers said.

The move is a defining moment for Amgen Chairman and Chief Executive Officer Kevin Sharer, a former MCI executive who joined Amgen in late 1999. His main mission has been to jump-start a company that lives almost entirely on two drugs introduced more than a decade ago: Epogen, an anemia drug, and Neupogen, an infection fighter.

For Seattle, the deal means losing the corporate headquarters of a company that has been a catalyst in a relatively young, fast-growing industry.

For American Home Products, the deal is a clear win: It would raise plenty of cash to settle lawsuits over the weight-loss drug fen-phen that have cost the company $13 billion.

Whether Amgen and Immunex are winners is less clear.

The deal would allow Amgen to answer critics who say the company lacks hot new products, and it would give the company a respected team of scientists to help boost its innovation.

Amgen also would get a prize in Enbrel, the most effective drug yet for rheumatoid arthritis. Enbrel, which is under patent until 2011, is projected to reach $4 billion in sales by 2005 if it is approved for use against other diseases.

Amgen would be able to market Enbrel in tandem with Kineret, its newly approved drug for rheumatoid arthritis that is expected to help people that Enbrel does not.

But the acquisition could knock down Amgen's earnings by 20 percent next year.

Benefits for Immunex are somewhat fuzzier. Company veterans remember well how Amgen's sales and marketing acumen dealt Immunex a crippling blow a decade ago when the companies were racing to develop drugs to help chemotherapy patients fight infection. Amgen's product, Neupogen, went on to own the market with more than $1 billion in sales, beating Immunex sales 24-to-1.

Under Amgen, Enbrel would get that same kind of sales and marketing firepower, which has never been Immunex's forte. The deal would help replenish a pipeline of advanced drug candidates that has been running dry at Immunex and would relieve the company of this year's missed opportunity — its inability to make enough Enbrel to keep up with demand.

Ed Fritzky, CEO of Immunex, would leave the combined company with an undisclosed severance package but keep a seat on Amgen's board of directors. Fritzky, 51, joined Immunex in 1994 after a pharmaceutical-sales career and presided over the Enbrel boom.

Many Immunex observers, including company co-founders Christopher Henney and Steve Gillis, say they were surprised by Immunex's apparent willingness to be acquired.

As recently as August, Fritzky hinted Immunex would use its $1 billion in cash to acquire a smaller biotech with strong science. Even as the company stock plunged 60 percent in the first half of the year, he said Immunex would continue to invest in its research and manufacturing plants.

He described as one of Immunex's finest moments the day in November 1995 when it spurned a takeover by American Home Products, which at that point owned about 54 percent of Immunex.

AHP's move scared many at Immunex who feared the biotech's creative scientific culture would be stifled by the conservatism of a giant company.

Amgen has an excellent reputation as a place to work, said Henney, now chief executive of Dendreon, another Seattle biotech. Others wonder how many Immunex scientists might jump ship and start their own companies in Seattle.

Gillis, chief executive of Seattle biotech Corixa, said the purchase could mean a new wave of consolidation in the biotech industry.

"The combination of Amgen and Immunex creates a major (big pharmaceutical) contender, which neither could claim on their own," Gillis said. "This really enables them to market all of their products on their own. For sales and marketing, it really gives them more horsepower."

Wall Street has reacted negatively to a possible deal, in part because investors believe it will depress Amgen's earnings growth. But Amgen said the deal will dilute earnings by only 5 percent in 2003 and will contribute to earnings after that. Amgen last month forecast 20 percent earnings per share growth for the next five years.

On Friday, Amgen shares closed at $56.03 and Immunex at $25.62. Both trade on Nasdaq.